UPS is warning that its earnings will fall short for the fourth quarter of last year, mostly because the company overcompensated for the shipping woes of 2013, when it delivered a surge of last-minute packages after Christmas.

For 2014, it hired more workers and invested in more equipment than was needed to handle what turned out to be an easier Christmas shipping season. E-commerce is a bigger part of UPS’ business now, and it is also hard to forecast. Will cost-cutting hurt performance next year?

Click play above to hear more from this story

]]>Fri, 23 Jan 2015 20:16:41 GMTWhat’s QE and the ECB got to do with you and me?http://www.marketplace.org/topics/economy/what%E2%80%99s-qe-and-ecb-got-do-you-and-me

The European Central Bank’s quantitative easing bond-buying program is supposed to boost the eurozone’s economy. It could also have some big effects on this side of the pond. A stronger dollar hurts tourism and exporters, but some of that European cash could find its way to our shores in other ways.

The European Central Bank is expected to announce a large bond buying program Thursday. Quantitative easing, as it’s called, could help boost the moribund eurozone economy by encouraging investment, but many are not on board. The Germans are the biggest critics, reminded of hyperinflation nearly a century ago, and worried that QE would let weaker European economies off the hook.

It used to be, way back when — say, two years ago — that when you clicked on a Netflix video, it would take a winding journey from a server in one location, through wires owned by any number of companies, until finally it hit your internet service provider. These days, that journey is a whole lot shorter.

“A few feet,” says Richard Bennett, a visiting fellow at the American Enterprise Institute.

More often than not, Netflix just connects a wire from its server to boxes owned by ISPs like Comcast, Verizon or Time Warner. They’re generally in the same building.

This is called interconnection, and it’s how most of our internet traffic gets to us now. It’s more reliable and efficient. Think: less buffering. And, increasingly, content companies like Apple, Google, and, of course, Netflix are paying fees for this service.

This is where things get controversial.

“In America, where these very few ISPs have so much market power that they can extract payments, it's just like the mob,” says Susan Crawford, who co-directs Harvard’s Berkman Center for Internet and Society. "Just say, 'you’re not going to reach our subscribers unless you pay us.'”

The Federal Communications Commission is getting more complaints about these deals. And, now, it has to decide what — if anything — to do about them. It’s not sure whether interconnection should be part of net neutrality regulations expected next month, tackled separately later on, or left alone completely.

That’s what many ISPs would like.

“We all get the services we want,” says Matthew Brill, a partner at Latham & Watkins who represents many big ISPs. “There’s a real danger that if government gets in the middle of those relationships, it will distort things in a way that ends up very harmful for consumers.”

But what if Netflix videos are basically unwatchable unless Netflix pays an ISP for a direct connection. Is that fair?

“Comcast could say, well, you’re using a third of our traffic, and we could say, well, we’re providing a third of the value your subscribers are getting, so you should pay us instead,” says Ken Florance, Netflix’s vice president of content delivery.

What Netflix really wants is to pay nothing. It will be up to the FCC or Congress to decide whether they have a role in these disputes.

Big banks are reporting disappointing earnings this week, in large part because of falling revenue from bond trading. That’s bad news for banks and their investors, but might not be so bad for the rest of us, some economists say. It could be a sign that regulations are reducing risk, as long as falling profits don’t encourage banks to seek higher returns elsewhere.

]]>Thu, 15 Jan 2015 19:34:30 GMTAs consumer prices fall, we may be buying more with lesshttp://www.marketplace.org/topics/economy/consumer-prices-fall-we-may-be-buying-more-less

Shoppers disappointed economists last month. Retail sales fell 0.9 percent, while experts expected an increase. But those Commerce Department numbers might not tell the whole story. Consumer prices have been falling, so we might be buying more things for less money.

President Obama announced a series of cybersecurity proposals Monday, in advance of the State of the Union address. He wants to require companies to notify consumers of a data breach within 30 days, and he says more companies will soon provide free credit scores. Those plans only address what happens after a breach, though. Are companies learning from the hacks at Target, Sony and Home Depot?

A ban on cellphones in New York City Schools that's been around for almost a decade is expected to end in March. The city's mayor, Bill de Blasio, made that announcement this week, arguing the prohibition makes it hard for schoolkids to contact their parents.

He also said it is unfair that the rule is enforced more strictly at lower-income schools where there are metal detectors.

Lifting the ban will do more than let phones back into the classroom — it will also kill a number of small businesses.

For years, cord-cutters ditching cable had few options for live sports. Dish will soon offer an Internet streaming service that changes that. For $20 a month, its Sling TV will offer ESPN and a few other channels online. It’s an attempt by ESPN and Dish to reach millennials who have little intention of paying for traditional TV. The risk is that it will also attract existing customers who just want to save money.

Come October, stores and restaurants must install new credit card readers that accept secure credit cards with smart chips, or the store will be held responsible for any fraud that occurs. U.S. card issuers are scrambling to send members new chip-enabled cards, but not all of them will work the same way.

Some will require customers to sign a receipt like today. Others will use a more secure PIN code, like at an ATM, but most banks are choosing convenience and familiarity over security.

While all those sites sound like separate competitors, a good number are part of just one company: IAC/InterActiveCorp.

In recent years, IAC has swallowed up the old stalwart, Match.com, the irreverent, young OkCupid, the fast-swiping Tinder app, and, just recently, an upstart called HowAboutWe. It owns niche sites like BlackPeopleMeet, and OurTime for the 50+ set. And it’s investing in an expensive new matchmaking service.

“What IAC is doing is incredibly smart,” said Amy Webb, author of “Data, A Love Story”. She said IAC is operating kind of like Gap Inc., which owns the brands Old Navy and Banana Republic.

“At the end of the day, they’re all clothing, but they offer different kinds of clothing to different lifestyles, different kinds of buyers,” she said.

Experts used to think the future of online dating was in small niche sites, matching farmers or people who don’t eat gluten, or maybe gluten-free farmers.

But the big sites are winning for a simple reason.

“It’s like a shop,” said Mark Brooks, an industry consultant. “And you’ve really got to stock the shelves. You can’t make do with a few hundred people. You need to have thousands of active people on a dating site.”

Each of these mainstream sites has carved out its own image, partly by word of mouth.

“The reality is that people feel at home when they go to a dating site that has people on it that look like what they think they want,” Brooks said.

That’s how Erica Berger of Brooklyn ended up on OkCupid.

“I joined OkCupid back in November 2009, after I moved to Brooklyn from Los Angeles,” she says. “I was referred to it by a close friend from high school who I trusted.”

Her first online date was a butternut squash tasting.

These kinds of referrals lead to some self-segregation. OkCupid is full of people like Berger, who is 27, lives in a big city, works in media, and is not in a rush for a relationship.

She’s also used IAC-owned apps like Tinder, popular for quick dates, and HowAboutWe, which is focused on specific date ideas. But she hasn’t used Match, whose users tend to be older, and more interested in marriage.

This is why IAC doesn't just combine all the sites into one.

Sam Yagan, CEO of the Match Group, the IAC unit that controls its dating properties, says dating is “such an intimate and personal search process, that people care a lot about the emotional affiliation they have with the brand that they choose.”

The strategy has led IAC to control more than a quarter of the $2.2 billion online dating market in the U.S., according to IBISWorld. That’s twice the next biggest competitor, eHarmony.

Match Group runs all the services separately. Occasionally, the teams will talk about features that worked well. But you don’t see OkCupid staffers talking much with those from Match.com.

Having the sites under one roof, however, does provide opportunities for cross-promotion. “It’s not like you turn 35 and we all of a sudden take your profile from OkCupid and put it on Match,” Yagan joked. “You might start seeing Match ads on OkCupid.”

Then there’s the question of the business model: “If the goal of the dating site is to get you offline and into the real world with your life partner, they probably wouldn't offer a subscription service,” Webb said.

Yagan has an answer that’s less conspiratorial, but perhaps more depressing: “The average adult has over 10 relationships before they get married," he said. "And, by the way, half of all marriages end in divorce. So, if you just do the math there’s a 90+ percent chance that the relationship you’re in when you leave Match, OkCupid [or] Tinder is not going to be your terminal relationship.”

The other day, an email came in from a big online contact lens store that said, starting Aug. 1, we can all forget about getting a deal on the most popular contact lenses.

What’s happening is something called unilateral pricing. Johnson & Johnson, which makes the top-selling Acuvue brand, is joining other manufacturers, like Alcon and Bausch & Lomb, in telling eye doctors, big box retailers and online stores that they can’t charge less than a certain amount.

“If the retailer sets the lenses for below that price, then the supply of that particular contact lens would be cut off,” Senator Amy Klobuchar, Democrat of Minnesota, said as she opened a Judiciary Antitrust Subcommittee hearing on the new practices.

“If the point is to save consumers money, I don’t know why we have a minimum price we can’t go below,” R. Joe Zeidner, general counsel at the discounter 1-800-CONTACTS, told the panel.

But pricing experts say unilateral pricing is not always bad for consumers.

“They can compete on other things,” said Barbara Sicalides, a partner and antitrust expert at the law firm, Pepper Hamilton. Companies like Bose use unilateral pricing to maintain cachet. Others, like Samsung, use minimum prices to help combat “showrooming,” helping stores staffed with knowledgeable salespeople compete with online sellers.

“One benefit is that you’re going to have more services provided to you when you buy some very complex products,” says John Zhang, a pricing expert and professor at the University of Pennsylvania’s Wharton School.

But buying contacts is different. Your doctor has already told you what to buy, and gets paid separately for the exam.

Eliminating discounts may make you more willing to buy directly from the optometrist. That’s the accusation made by contact lens discounters like 1-800-CONTACTS.

At the hearing, Dr. Millicent Knight, Johnson & Johnson Vision Care's head of professional affairs, said the new pricing is simpler and cheaper for most. It eliminates cumbersome rebates, and has “a price that is actually lower than the current national average selling price to consumers," she said.

But that’s just the average. For the roughly 10 percent of shoppers who buy online, according to Euromonitor, prices will likely go up.

And, all of this is perfectly legal, as long as manufacturers aren’t actively coordinating prices among themselves or with retailers.

The European Union is joining the U.S. in imposing tough, new sanctions against Russia, which continues to support separatists in eastern Ukraine.

The new measures include an arms embargo and restricted sales of technology and equipment for Russia's oil industry.

In a big change, the new sanctions target sectors rather than just individuals in President Vladimir Putin's inner circle.

“The shootdown of the Malaysian aircraft I think has changed the equation,” says Kenneth Yalowitz, a former U.S. ambassador to Belarus and Georgia, and now a global fellow with the Woodrow Wilson Center.

But the new EU sanctions and the U.S. ones already in place haven’t hit American businesses as badly as some feared.

“U.S. companies, if anything, breathed a little sigh of relief today that they’re not going to be held out relative to their European counterparts,” says Doug Rediker, a visiting fellow at the Peterson Institute for International Economics.

Russia is not a big trading partner with the U.S. Some companies like ExxonMobil and Citigroup might suffer a bit, but the biggest risk is Russian retaliation against big brands like McDonalds, claiming things like "'some health concerns' — in quotes — that were expressed by Russian authorities,” says Rediker.

Other potential targets include companies like Visa, MasterCard, and big U.S. accounting firms.

Others see little damage to U.S. companies so far.

“Retaliatory sanctions against businesses in the West, to the extent there have been any, they haven’t been very impactful,” says David Levine, partner with the law firm McDermott, Will & Emery.

A big question now is whether Western governments will have the stomach to continue sanctions for moral reasons, or whether trade and commercial interests will win out.

Alan “Ace” Greenberg, who rose from a Bear Stearns clerk in 1949 to become the firm’s CEO in 1978, died Friday at 86. The cause was complications from cancer.

When he joined the investment bank, it was a little, scrappy company. It rose to become one of the industry’s biggest, but never lost its outsider image, until it nearly collapsed in 2008. JPMorganChase acquired the company at a bargain basement price, in one of the first moves of the impending financial crisis.

Ace Greenberg came from another era of Wall Streeters. He had no Ivy League degree. He was born in Kansas, and he grew up in Oklahoma.

“He liked to gamble, he liked magic, he liked bridge, and, of course, the only way to legally gamble at that time was to go to Wall Street,” says William D. Cohan, author of “House of Cards, A Tale of Hubris and Wretched Excess on Wall Street,” a book that chronicles the fall of Bear Stearns.

During his career, Greenberg’s trades made a lot of money, and by 1978, he was the boss, instilling in the company a culture both of risk taking and frugality, reusing envelopes and giving new employees welcome packets with a note and some supplies.

As former Bear Stearns trader Lee Munson remembers it, the note said, “You have 50 rubber bands and a box of paper clips, and use them wisely throughout your career at Bear Stearns because you’re not going to get any more.”

Greenberg stepped aside as CEO in 1993, making way for his successor, James Cayne. He had first met Cayne playing bridge.

“Bridgeplaying was the Facebook of their time,” says Cohan.

As Bear Stearns was starting to unravel in 2007, Cohan says Cayne was in communicado at a bridge tournament. And, he says Greenberg developed a grudge against his former friend and successor for driving the firm into the ground.

“That, of course, ignores Ace’s role in it because Ace was part of the firm’s DNA,” Cohan says.

President Obama is set to meet with the Presidents of Honduras, Guatemala and El Salvador Friday to talk about the influx of young migrants crossing our borders. Officials estimate 57,000 have made it to the US since late last year -- Most are teenagers. It’s a big increase over years past.

The unaccompanied children come to flee poverty, gangs, and drug cartels. There are more migrants than cots for them to sleep on.

“There’s lots more that can be done to beef up border enforcement. But the real long term solution is to address the main drivers of migration,” says Cindy Arnson, director of the Latin American program at the Woodrow Wilson Center.

Those drivers include ineffective institutions, poor security, and lack of opportunity.

The President has asked Congress for $3.7 billion to deal with the immediate issue. Most of that appropriation would go to border enforcement and immigration courts.

Arnson expects Latin American leaders to say the U.S. has a shared responsibility in solving the crisis.

“The smart answer to this situation is to address the root causes in a sustained and smart way with foreign policy and economic policy,” says Karen Musalo, director of the Center for Gender and Refugee Studies at the UC Hastings College of the Law.

She hopes the conversation is candid and honest between the leaders.

But it’s up to Congress to decide whether it will approve anything at all before it heads off for Summer recess.

“I think most CFOs would not admit they’ve hoarded too much cash,” says John Graham, finance professor at Duke University.

He estimates that companies have about 50 percent more cash on their balance sheets than they did 10 or 15 years ago.

Is it time for an intervention?

“They did just live through the financial crisis,” he says. “They think they're being prudent, you want to hold your cash, in case it becomes difficult to borrow down the road.”

Non-financial companies — like Microsoft and Merck — had a total of $1.6 trillion in cash at the end of 2013, according to Moody’s.

“A lot of money is effectively just sitting there.” says Richard Lane, a senior vice president at Moody’s. “And, where it’s sitting increasingly is offshore.”

It’s locked up overseas, mostly to avoid U.S. taxes.

“I don’t need Apple to save money. My local bank or credit union will handle it for me just fine,” says David Cay Johnston, a lecturer at Syracuse University’s College of Law. Corporate hoarding affects the economy.

“What you’re not seeing them do with this cash is invest in new factories and research operations, which would create jobs and fundamentally grow the business,” Johnston says.

There are signs companies are loosening up a little. Apple just made its biggest-ever acquisition, spending $3 billion to acquire headphone maker Beats.

And activists are increasingly pressuring companies to give more of their profits back to investors.

In a recent survey of CFOs, about half said their companies are going to invest in their businesses soon. But the other half? They’re not budging.

Amanda Moffitt is 30, so she was just getting settled when the economy tanked.

“It was 2008, so there was a lot of concern about the stock market and what could possibly happen to your money when you invest it,” Moffitt says.

And, it turns out, that attitude has stuck among young adults.

“They are the most risk-averse group,” says Greg McBride, vice president and chief financial analyst at Bankrate. Its new survey shows that once those under 30 actually have some money to save, they’re very cautious.

“They prefer cash by a 3-to-1 margin over the stock market, for money they’re not going to need for at least 10 years,” he says.

That could be too conservative of a strategy, since savings accounts don’t keep up with inflation.

“Kind of gets us back to that Depression mindset of hiding cash under the mattress,” says David Weliver, editor of moneyunder30.com. Part of the whole problem is choice overload.

“The thousands of investment choices, and all the conflicting advice out there. A lot of it is they sit tight and do nothing,” Weliver says.

As for Amanda Moffitt, she’s wised up. She’s working to become a financial planner.

So where should millennials be investing?

We've heard the mattress is not the way to go, and saving accounts aren't much better. Young people may also simply be intimidated by the vast array of choices, or worried they don't have enough money on hand to make investing worth it. Nonsense.

We've dug back into the Marketplace archives to find some of the best advice we can offer for young (or otherwise new) investors. To start, here's a quick personal finance cheat sheet.

Our series "We Used to Be China," continues with stories about our country confronting the environmental challenges that now bedevil China. Problems like… acid rain. It was the environmental crisis of the '80s, but a new Clean Air Act in 1990 greatly reduced the pollutants causing acid rain. It did so with something we now call Cap and Trade…setting a maximum level of pollutants and then letting industry decide how to get there.

Sue Capone was a young biologist in 1984 when, amid a growing environmental crisis, she started work at the Adirondack Lake Survey Corporation in upstate New York. The corporation had recently been formed to study how seriously acid rain was affecting sensitive lakes and ponds in the mountains. It was her job to measure just how bad things were.

Capone found many lakes were crystal clear. They were beautiful to look at, but a sign that things were very wrong: Acid rain had killed just about anything living in the water, including the fish.

For 30 years now, Capone has been driving, hiking, and flying to dozens of mountain lakes to collect vials of water to take back to the lab for analysis. And she's surprised at how fast things have turned around. "Some of the classic, clear waters from the acid days are starting to look more cloudy," she says. "That's a very good sign."

pH levels, a measure of acidity, are improving. Now, when the state stocks fish in many lakes, they survive, and even thrive, to the joy of fishermen who found the 1970s and '80s depressing. It's a remarkable turnaround in since acid rain's discovery in the U.S. by a young professor at Dartmouth College named Gene Likens, just a half century ago.

"It was a great surprise," Likens said. "It was one of those 'a ha!' moments."

At the time, Likens and his colleagues were beginning a project to measure the health of a New Hampshire forest. It was like taking the vital signs of a patient, trying to get a baseline of health. Then, it rained, and he was shocked to find the rainfall's acidity was closer to vinegar than pure water.

This was about to become his life's work. It would be nearly another decade before he would help popularize the term "acid rain" in his first academic paper. There was a lot of work to be done first.

Foremost, he had to figure out rain's normal pH levels. This was no easy task. He and some colleagues traveled to some of the most remote places on Earth, like the southern tips of South America and Africa, to measure rain as unadulterated by human activity as possible.

Their hunch was right. The rain falling in New Hampshire was way too acidic, and was well on its way to killing forests and lakes. He had another hunch: coal-powered power plants in the Midwest were the culprit, but he would need solid proof. Utility owners were skeptical.

Electric companies would tell him, "No, it's not going up my smokestack! No! What went up my smokestack didn't come down on your forest in New Hampshire," he said.

His team's first attempt at proving a connection between power plant emissions and acid rain was simultaneously rudimentary and ambitious. They'd follow smokestack plumes in small planes to see where they ended up. Before long, they developed more sophisticated tracer chemicals that proved the hypothesis.

Coal-fired power plants in the Midwest were emitting millions of tons of sulfur dioxide and nitrogen oxides into the atmosphere. The pollutants then blew east, falling as acid rain on the ecosystems of states like New York, Vermont and New Hampshire.

With the evidence in by 1972, Likens was ready to tell the world in his first academic paper on the subject.

"We thought long and hard about what the title should be," he says. In the end, they went with "Acid rain," which turned out to be a brilliant label. It clicked with the public.

"The idea that you could sing in the rain, walk in the rain, and then the rain was acid, really grabbed people," he said. "It had that impact. Branding, if you will."

A couple of years later, with another paper on the way, acid rain was now big news, featured on the front page of major newspapers. Likens became a celebrity among his peers.

"I had phone calls from literally all over the world. Scientists saying, 'What is going on? What is all this about?'"

Hundreds then joined the research effort, and by the 1980s, acid rain was a mainstream issue. Schoolchildren wrote papers about it. The PBS series NOVA devoted an hour to the crisis. It was the environmental crisis du jour, even ending up in "Captain Planet," the kids' cartoon.

Despite the public awareness, acid rain also felt intractable. Even with mounting evidence, politicians procrastinated by ordering more studies. And, even if there had been political will to solve acid rain, there was no guarantee that environmentalists and industry could get on the same page.

That was the state of affairs until the 1988 election, which placed in power politicians with serious interest in doing something about acid rain.

"It was like all the planets aligning," said Brian McLean, then with the Environmental Protection Agency. He was one player in a surprising group who worked together to get a new Clean Air Act proposed, written and enacted in mere months.

"The political, the interest groups, industry, environmentalists, and particularly political leadership coming together at an unusual time," McLean said.

The first big thing that happened: George H.W. Bush became president. Much more than his predecessor, Ronald Reagan, Bush wanted to prove a Republican leader could be serious about the environment. He ran on the issue.

At the same time, there was a big shift among Democrats. George Mitchell, a Democrat from Maine, replaced Robert Byrd, a Democrat from West Virginia, as majority leader. In that era, environmental politics was much more divided by geography than party. Maine was a victim of acid rain, caused in part by West Virginia coal.

So, with new politicians in charge, Boyden Gray on Bush's transition team called a meeting at the White House. Among those there was Dan Dudek of the Environmental Defense Fund. He was also an economist.

President Bush, Dudek said, "wanted to make good on his promise of being the environmental president. We said 'Hey! solve the acid rain problem! That will certainly quiet the critics.'"

Gray tells the story a little differently. "Well, we were already focused on acid rain, so I don't know if they tipped the balance on that," he said.

Either way, the environmental crisis was now a top priority.

Dudek had an idea he thought might just bring together Republicans and Democrats, environmentalists and industry. He pitched it to Gray at that meeting.

"You can do it in a novel way," Dudek said. "Set up a market."

Gray said it was that idea, a market approach, that "broke the logjam." Here, an environmental group was behind the kind of idea a Republican could get behind.

The idea was this: The government sets a limit on the amount of sulfur dioxide that can be released in a year. Power companies are told how much they can emit. It's up to them to decide how to get to those lower levels—maybe install scrubbers or switch to a a different kind of coal. If they cut more than their allowance, they could sell the excess to a power company struggling to meet its limit. It became known as: cap and trade.

It wasn't the kind of idea power companies were used to hearing from government. Gary Hart was with the big utility Southern Company at the time, and he first heard about it at a coal conference.

"And, I kind of casually walked over to the office after the conference and said, guys, you won't believe what I just heard," Hart recalled.

Southern Company, like many utilities, was initially fiercely opposed. It was fear of the unknown, he said.

But behind the scenes, Hart and his team watched the bills' drafts closely, calculating how much each would cost the company.

Meanwhile, Brian McLean at EPA was writing the White House's plan as fast as possible.

"That's all I did for five or six months, day and night, we worked on these things," McLean remembered. "We got it up there. I remember the first day we were outside and there was sun. I hadn't seen the sun in that many months."

It was July 1989. President Bush gathered members of Congress to the Rose Garden to unveil his proposed new Clean Air Act. By 1990, it was law.

And, it worked, better than even many supporters predicted. Some companies overcorrected so they could make money selling allowances. Emissions fell faster and more cheaply than planned.

The act called for emissions to be reduced by half. But today, sulfur dioxide and nitrogen oxides emissions are down more than 70 percent.

In the end, the program won over environmentalists who thought it was too lenient on industry, and an industry that expected it to be expensive.

And, Gary Hart said, it worked partly because all the sides more or less got along.

"People who you thought would be natural enemies like Southern Company and EPA, we were working together because we wanted it to work," he said.

That's not to say acid rain is completely solved. Forest ecosystems will take far longer to recover than lakes.

But with years of improvement, Karen Roy, the head of the Adirondack Long Term Monitoring Program, is thinking of scaling back the collection of lake samples. A basement conference room was nicknamed "the war room" in the 1980s. A map of the region still covers one wall, with pins in the lakes the team has analyzed the past three decades. Some of the pins have fallen out as the crisis abated.

"Would I have predicted we could have turned this around as a nation? No, I would not," Roy says. "Too many other things seemed to get in the way."

]]>Thu, 17 Jul 2014 17:55:59 GMTCalifornia farms pumping water to make up for droughthttp://www.marketplace.org/topics/economy/california-farms-pumping-water-make-drought

This is the third-driest year in California in at least 106 years. The drought has led state officials to clamp down on water waste, like open hoses. Fines can hit $500.

The drought is having its biggest effect on California’s mammoth agriculture industry. A report from UC Davis’s Center for Watershed Sciences pegs losses at $2.2 billion this year.

“There will be some pockets of deprivation, poverty,” says Josué Medellín-Azuara, a UC Davis researcher who worked on the report.

Four hundred square miles of farmland has been fallowed—mostly lower-value crops like alfalfa. More than 17,000 seasonal farm workers are affected.

“It takes people to provide nutrients for those crops. It takes people to even insure those crops. It takes people to truck those crops to market,” says Bruce Blodgett, executive director of the San Joaquin Farm Bureau.

The drought’s impact could be far worse, though.

Farmers in the Central Valley have managed to find another source for 75 percent of the water they normally get from state and federal reservoirs. They’re drilling deep into underground aquifers, pumping out enough water to cover 7,800 square miles a foot deep.

“I’m fortunate enough to have a well for groundwater, but it’s caused our electric rates to probably triple,” says Thomas Ulm, a farmer in Modesto.

Ulm’s farm is getting only half the reservoir water it’s usually allocated, so he’s relying on his own well to keep his almonds, walnuts and grapes growing.

His neighbor just drilled a well, too. All this drilling and pumping is unregulated and, “Eventually, of course, you run out of water,” says Robert Glennon, a professor at the University of Arizona, and the author of “Unquenchable: America’s Water Crisis and What To Do About It.”

If the state’s groundwater is like a giant milkshake glass, “what California is allowing is a limitless number of straws in the glass,” he says. “That’s a recipe for disaster. It’s utterly unsustainable.”